Vol. 32 No. 9 (October 2022) pp. 113-116 DEBT AND FEDERALISM: LANDMARK CASES IN CANADIAN BANKRUPTCY AND INSOLVENCY LAW, 1894–1937, by Thomas G.W. Telfer and Virginia Torrie. Vancouver: UBC Press, 2021. pp. 284. Paperback: 27.95. ISBN: 9780774867283.
Reviewed by Camden Hutchison. Peter A. Allard School of Law. University of British Columbia. Email: hutchison@allard.ubc.ca.
DEBT AND FEDERALISM: LANDMARK CASES IN CANADIAN BANKRUPTCY AND INSOLVENCY LAW, 1894–1937, by Thomas G.W. Telfer and Virginia Torrie, lives up to the promise of its title, examining four pivotal cases in the history of Canadian insolvency law. By analyzing these cases in detail, the authors reveal the origins of the modern Canadian insolvency regime, including the prominent role of the federal government. The authors’ thesis is that, during the six decades following Confederation, the scope of federal power over “bankruptcy and insolvency” under the BRITISH NORTH AMERICA ACT, 1867 was uncertain and contested, particularly where it conflicted with provincial authority over “property and civil rights.” It was not until the Great Depression that, in the words of the authors, “the final attributes of the contemporary federal bankruptcy and insolvency power were hammered out in the strained Canadian federalism of the 1930s” (p. 11).
Telfer and Torrie’s historical narrative centers on four cases: the VOLUNTARY ASSIGNMENTS CASE (1894), ROYAL BANK OF CANADA V LARUE (1928), the COMPANIES’ CREDITORS ARRANGEMENT ACT REFERENCE (1934), and the FARMERS’ CREDITORS ARRANGEMENT ACT REFERENCE (1936, 1937). The authors argue that these four cases shaped Canadian insolvency law by adopting a broad interpretation of Parliament’s bankruptcy and insolvency power. Drawing on their prior scholarship, Telfer and Torrie develop this argument through a variety of legal sources, including parties’ facta, intervenors’ submissions, and the published judicial decisions themselves. Although Telfer and Torrie’s historical account is convincing on its own terms, their focus on legal cases as determinative of historical change is, at times, inadequately contextualized, and fails to explain the broader forces that shaped Canadian insolvency legislation.
DEBT AND FEDERALISM assigns a single chapter to each of its four case studies, bookended by an introduction and conclusion. The introduction frames the authors’ argument and lays out the constitutional conflict that, over a period of decades, the Supreme Court of Canada and the Judicial Committee of the Privy Council would be tasked to resolve. The essence of this conflict was that while section 91(21) of the BRITISH NORTH AMERICA ACT, 1867 (today, the CONSTITUTION ACT, 1867) grants Parliament exclusive jurisdiction over “bankruptcy and insolvency,” section 92(13) grants the provinces exclusive jurisdiction over “property and civil rights.” Following Confederation, federal bankruptcy and insolvency legislation was limited and halting (and was repealed entirely in 1880), whereas provincial debtor-creditor legislation was often broader and more ambitious. This gave rise to a legal context in which newly-enacted federal legislation stood to conflict with provincial law. The constitutional overlap between federal and provincial jurisdiction was the underlying issue in each of the book’s four landmark cases.
Following the introduction, Chapter 2 addresses the VOLUNTARY ASSIGNMENTS CASE, decided by the Privy Council in 1894. According to the authors, this case is historically significant not for its legal ruling, which upheld Ontario’s assignment legislation in the absence of federal law, but rather for Lord Herschell’s obiter dicta, which described the federal bankruptcy and insolvency power in expansive terms. According to the Privy Council, although Ontario was entitled to enact its own debtor-creditor law (particularly in the face of federal inaction), Parliament retained its latent power to preempt provincial legislation. Ironically, although the VOLUNTARY ASSIGNMENTS CASE preserved the scope of federal power, its validation of provincial law had the practical effect of discouraging federal legislation in the immediate term. It was not until 1919 that Parliament reentered the bankruptcy and insolvency field.
Chapter 3 addresses ROYAL BANK OF CANADA V LARUE, which involved a provincial law challenge to the federal BANKRUPTCY ACT of 1919. At issue in ROYAL BANK OF CANADA was the claimed enforceability—notwithstanding the BANKRUPTCY ACT—of a judicial hypothec under Quebec civil law. When the case was argued before the Privy Council, the BANKRUPTCY ACT was characterized by both the creditor-appellant (Royal Bank of Canada) and the province of Quebec as an assault on Quebec’s civil law system of property rights. Indeed, Quebecois jurists and politicians had criticized the act as an “invasion” of English law and a denial of Quebec’s civil law heritage. For their part, the debtor-respondent and the federal government (as intervenor) emphasized the clear grant of federal authority under section 91(21). The Privy Council agreed, ruling that the BANKRUPTCY ACT—including its relegation of provincial law—was intra vires Parliament’s bankruptcy and insolvency power.
The next landmark case, discussed in Chapter 4, is the Supreme Court of Canada’s COMPANIES’ CREDITORS ARRANGEMENT ACT REFERENCE of 1934. This reference decision addressed the unsettled question of whether federal insolvency legislation could impair the rights of secured creditors. Again, the key legal issue was the constitutional interplay between federal and provincial lawmaking authority. To the surprise of many, the Supreme Court held that the COMPANIES’ CREDITORS ARRANGEMENT ACT’s modification of secured claims was within Parliament’s power, seemingly endorsing a major expansion of federal jurisdiction. However, given that the Supreme Court was not Canada’s final court of appeal (that role being held by the Privy Council), the authors argue that the Canadian legal and financial community placed little reliance on the Supreme Court’s decision. It was not until the Privy Council rendered its judgment in the FARMERS’ CREDITORS ARRANGEMENT ACT REFERENCE that the full scope of the federal bankruptcy and insolvency power would be confirmed.
Chapter 5, addressing the decisions of both the Supreme Court and the Privy Council in the FARMERS’ CREDITORS ARRANGEMENT ACT REFERENCE, is the book’s most significant chapter. Not only was the reference itself of major constitutional importance, it is also the case for which Telfer and Torrie provide the broadest historical context. Like the COMPANIES’ CREDITORS ARRANGEMENT ACT (CCAA), THE FARMERS’ CREDITORS ARRANGEMENT ACT (FCAA) impaired provincial security interests. Unlike the CCAA, however (which primarily affected commercial interests), the FCAA addressed issues of widely-held political concern and went further in advancing federal policy at the expense of provincial autonomy.
The FCAA was precipitated by the Great Depression and the Dust Bowl, which led to record numbers of Canadian farm insolvencies. Farmers were an important political block, particularly in the prairie provinces, and the Conservative government of R. B. Bennet faced intense pressure to pass relief legislation. The FCAA was an ambitious program that allowed farmers to restructure their debts even in the absence of creditor approval. Like the CCAA, the FCAA undermined the legal rights of secured creditors (including, in the case of the FCAA, provincial Crown institutions). At a more basic level, however, its provisions raised the question of whether the FCAA was truly “bankruptcy and insolvency” legislation, or whether it was class legislation intended to protect farmers. The reality, of course, is that it was both, but despite the act’s encroachment on provincial law, the Privy Council upheld the FCAA under the BRITISH NORTH AMERICA ACT, 1867. According to Telfer and Torrie, this was a pivotal constitutional development—following the FARMERS’ CREDITORS ARRANGEMENT ACT REFERENCE, federal authority over insolvency law has remained essentially unquestioned.
The authors’ conclusion emphasizes the contingent nature of this expansion of federal power. According to Telfer and Torrie, at no point prior to the FARMERS’ CREDITORS ARRANGEMENT ACT REFERENCE was a strong federal insolvency regime inevitable or predetermined. The conventional wisdom at the time was that provincial law played a central role in debtor-creditor relations, and that Parliament lacked the legal authority to interfere with provincial property rights. Telfer and Torrie cast their landmark cases as both innovative and disruptive, establishing the constitutional basis for modern bankruptcy and insolvency law.
Overall, Telfer and Torrie’s arguments are well researched and convincing. Their historical focus on “landmark cases” involves certain limitations, however. While the authors’ discussions of legal arguments and judicial rulings are often insightful, they fail to embed the Privy Council’s decisions in the broader historical context, and tend to deemphasize the political forces that gave rise to Canadian insolvency legislation. Greater attention to the historical relationship between economic change and democratic politics would have been welcome, particularly for readers less familiar with the era. In addition, DEBT AND FEDERALISM fails to resolve a key puzzle at the heart of its historical narrative: Why did the Privy Council—notorious for advancing provincial power at the expense of federal authority—adopt essentially the opposite approach in the area of bankruptcy and insolvency? It is remarkable, for instance, that the Privy Council struck down nearly the entirety of Canadian “New Deal” legislation while upholding the FCAA, a redistributive farm relief program. Without any comparison to Privy Council decisions in other areas of constitutional law, the authors’ resort to “contingency” is analytically unsatisfying.
That being said, a broader comparative analysis of Canadian constitutional development would require a far longer and more ambitious work, and the task of a reviewer is to assess the book that has actually been written, not to imagine a preferred alternative. By this standard, DEBT AND FEDERALISM is a valuable contribution to Canadian bankruptcy and insolvency scholarship. In closely analyzing the landmark cases that have shaped federal power, Telfer and Torrie have helped illuminate the foundations of Canadian insolvency law.
REFERENCES:
VOLUNTARY ASSIGNMENTS CASE, [1894] AC 189.
ROYAL BANK OF CANADA V LARUE, [1928] AC 187.
COMPANIES’ CREDITORS ARRANGEMENT ACT REFERENCE, [1934] SCR 659.
FARMERS’ CREDITORS ARRANGEMENT ACT REFERENCE, [1936] SCR 384.
FARMERS’ CREDITORS ARRANGEMENT ACT REFERENCE, [1937] AC 391.
© Copyright 2022 by author, Camden Hutchison.
